capital gains valuations

anthonymartin

I bought a house as main residence in 1990 moved into my girlfriends house in 1991. Tried to sell my house it did not sell, then rented it out. Sold it in 2004 having rented it for 12 years.

For cgt purposes, how do i show the residential value of it in 1992. The house sold for 250k in 2004 purchased for 75 k in 1990. I have been told that the residential value is tax free but i am to pay cgt on the value from when it was rented out.

Any thoughts?

Richie(UK)

Hi,

I suspect that the information that you received related to Private Residence relief. This is calculated on a time-apportioned basis - you do not need to know the 'residential value' in 1992.

Have a look at the Revenue's guide.

Note that in addition to your actual occupation of the house as your main residence there are also certain periods of deemed occupation. The main one of these is the final 36 months. You should also look at the section on letting relief as this appears to be relevant to your scenario.

Allowing 1% for sale costs and estimating Indexation Allowance (which ceased in April 1998) at £22,500 I calculate a gross gain of £150,000. Total period of ownership is 14 years. PPR is due for the first year and the last 3, giving 4/14 = £42,857. This amount is exempt. You should also be entitled to Letting Relief of £40,000. This leaves a gain of £67,143. If you have not used your Annual Exemption a further £8,200 (assuming post April 2004 sale) may be deducted from this. The tax payable will depend upon your personal circumstances but at least some of it is going to be payable at 40%.

HTH

Elaine_Wilson

You won't need to value the property when you started the letting as for tax purposes the gain is assumed to have accrued evenly over the period of ownership.

So, in rough figures you have owned the property for 13 years.

You lived there for 1 year and the last three years will also be exempt giving private residence relief of about 4 years.

You also get an extra lettings relief which is equal to this figure but limited to £40,000.

First calculate your basic gain. I will use your figure of £175,000 but don't forget to adjust for the expenses of purchase and sale, and also indexation relief of the gross purchase price.

4/13ths of this is exempt (about £53,850) leaving £121,150

Lettings relief will be limited to £40,000 leaving £81,150.

Assuming you sold after 5th April 2004 you get taper relief of 25% so the chargeable gain is reduced to about £60.900.

If you have no other gains the your annual exemption will bring the chargeable amount down to around £53,000.

This is just a basic guide to how the calculation works. There are calculators on the web. Post again if you want me to find one for you.

Richie(UK)

Elaine_Wilson wrote:

... you get taper relief ...

Ah yes, taper relief. Good catch Elaine (and a couple of marks dropped on that question for me )

e_python

Elaine_Wilson wrote:

You won't need to value the property when you started the letting as for tax purposes the gain is assumed to have accrued evenly over the period of ownership.

So, in rough figures you have owned the property for 13 years.

You lived there for 1 year and the last three years will also be exempt giving private residence relief of about 4 years.

You also get an extra lettings relief which is equal to this figure but limited to £40,000.

First calculate your basic gain. I will use your figure of £175,000 but don't forget to adjust for the expenses of purchase and sale, and also indexation relief of the gross purchase price.

4/13ths of this is exempt (about £53,850) leaving £121,150

Lettings relief will be limited to £40,000 leaving £81,150.

Assuming you sold after 5th April 2004 you get taper relief of 25% so the chargeable gain is reduced to about £60.900.

If you have no other gains the your annual exemption will bring the chargeable amount down to around £53,000.

This is just a basic guide to how the calculation works. There are calculators on the web. Post again if you want me to find one for you.

"There are calculators on the web. "

Can somebody please point me to a free calculator on the web. My circumstances are very similar to the above.

anthonymartin

wow that is great info........ can i assume 40% is about £21200 approx worst case scenerio..... Also i can deduct the cost of capital improvements over the years, building extentions, double galzing, repalcement roof, etc buying and selling costs.

Yes i have other charable gains because i ahd an offer to buy all the house i owned. so just to finish the picture..........moved into girlfriends house in 1992 we lived in this house together for year got married and then bought property 3 lived in as main res with other two properties rented out.......moved out of prop 3 began renting prop my father died in 2001 so bought 4th house which was not lived in but let straight away. in 2004. Had an offer to buy all the houses so sold all four. Properties were in joint names when they were sold.

I beleive now that it was not so good idea to sell 4 at the same time because of lack of allowances.

I think we have only 2* 8500 to use againest. I would be pleased to have a look at calculators if possible.

telly-addict

anthonymartin wrote:

wow that is great info........ can i assume 40% is about £21200 approx worst case scenerio..... Also i can deduct the cost of capital improvements over the years, building extentions, double galzing, repalcement roof, etc buying and selling costs.
QUOTE]

Selling costs are deducted from gross sale proceeds when calculating the gain.

Buying costs are added to your base cost (i.e. purchase price).

Capital improvements are called 'enhancement expenditure' if they add to the value of the property. If they were during a time when indexation allowance applied, i.e. before 5 APril 1998, then they attract indexation allowance too.

Sounds like your situation is a bit tricky with all these properties - take a look at the Inland Revenue website for guidance:

http://www.hmrc.gov.uk/manuals/CG1manual/index.HTM

and/or consult with a local Chartered Tax Adviser/Chartered Accountant.

If you exchanged contracts on the sale of the properties pre-5 April 2004 you need to complete a tax return for 2003/04 and that had to be filed (and any tax paid) by 31 January 2005. Interest and penalties are charged on late returns and late paid tax.

If you exchanged on or after 6 April 2004 then it is a 2004/05 return to be filed by 31 January 2006. This is the due date for payment of any CGT also. IR will calculate the liability if you submit the return by 30 Sept 05.

e_python

Are there any free calculators on the web that would calculate the CGT taking into account

Purchase Costs
Improvement Costs
Sale Costs
Taper Relief
Indexation
Private Residence
Renting allowance

telly-addict

e_python wrote:

Are there any free calculators on the web that would calculate the CGT taking into account

Purchase Costs
Improvement Costs
Sale Costs
Taper Relief
Indexation
Private Residence
Renting allowance

I'd be surprised as it's pretty complicated. What there might be, however, is the Inland Revenue helpsheets that are provided to assist with the completion of tax returns.

http://www.hmrc.gov.uk/sa/forms/net-04-05.htm

This is the link to all of the helpsheets, CGT is down towards the bottom. The IR website really is a useful source of info.

As a Chartered Tax Adviser, I would say that with all the tinkering around that there's been to CGT, it is a tricky subject for the layperson to approach. If you don't want to contact a Chartered Tax Adviser or Accountant, then the Revenue may be worth a call, if you can find someone to assist you.

A local accountant shouldn't charge too much if you are able to provide, up front all the relevant documentation:

• completion statements for sales and purchases
• detailed dates of occupation and letting
• documented enhancement expenditure

Personally I think it would be money well spent to have the assurance it is correct rather than have to pay penalties for inaccurate returns, interest on additional tax etc. Get a quote up front from the accountant with a schedule of any info they need.

I am all for people dealing with their taxes as far as possible, but CGT has the scope to get awfully messy - especially with indexation and taper relief. As a tax exam marker, I see the mess that trainee tax advisers get into!

anthonymartin

Hi thanks for your info.

Just out of interest if capital enhancement took place after 1998, how is this treated.

Does capital enhancement include double glazing, ground floor extentions,replacement roof etc.

look forward to hearing from you

telly-addict

anthonymartin wrote:

Hi thanks for your info.

Just out of interest if capital enhancement took place after 1998, how is this treated.

Does capital enhancement include double glazing, ground floor extentions,replacement roof etc.

look forward to hearing from you

Here's the requirement for enhancement expenditure:

http://www.hmrc.gov.uk/manuals/CG1manual/CG15183.htm

Calculation with indexed enhancement expenditure:

http://www.hmrc.gov.uk/manuals/CG1manual/cg15190.htm

Post 6-4-98 expenditure cannot be indexed so you would just have to add it to the cost when calculating the gain. It would reduce the gain and then the gain gets tapered. You made me think about this one! I can't think of any other way that it would be treated.